Were private investigations performed for insurance companies subject to Florida sales tax?

Subject

Insurance Investigations and SIC Classification

Plain-English summary

The investigator did not have to collect Florida sales tax on investigations performed for insurance companies. The taxable statute covered detective and protection services in SIC 7381 and 7382. Insurance inspection and investigation services instead fell within SIC 6411.

The insurance carrier did not have to receive the bill directly. When another party was billed, however, the invoice had to name the insurance carrier so the insurance purpose could be established. Without that name, the Department said the service would be taxable.

The result generally did not extend to work for a business that merely chose to self-insure. Unless the arrangement was a formal self-insurance plan under section 624.031, the Department classified that work under taxable SIC 7381.

What this means for you

Florida's result turned on what the investigation was for and how that purpose was documented, not merely on the fact that a private investigator performed it. Insurance-purpose work could fall outside the taxable detective-service categories, but an indirect invoice needed to identify the carrier.

A customer's internal decision to bear its own losses was not enough to make it an insurance carrier. The TAA distinguished formal statutory self-insurance plans from ordinary self-insured businesses.

Common questions

Q: Were insurance-fraud investigations taxable? No. On the stated facts, they were insurance services within SIC 6411 rather than taxable SIC 7381 or 7382 services.

Q: Did the insurance company have to be billed directly? No, but an invoice to someone else had to include the insurance carrier's name.

Q: What if the invoice omitted the carrier's name? The Department said the insurance purpose could not be presumed and the service would be taxable.

Q: Did the same treatment apply to self-insured businesses? Generally no. Work for a business that simply self-insured was taxable, except where a formal self-insurance plan met section 624.031.

Citations and references

• Fla. Stat. § 212.05(1)(j)1.a. — tax on detective, burglar-protection, and other protection services in SIC 7381 and 7382
• Fla. Stat. § 624.02 — definition of insurance quoted by the Department
• Fla. Stat. § 624.031 — formal self-insurance plans
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-024

Original ruling text

SUMMARY

The statute which imposes a sales tax on investigative services specifically states that the tax is imposed on those activities falling under SIC code 7381 and 7382. If an investigative service is performed for an insurance company, it will be considered to be an activity falling under SIC code 6411 and will not be subject to tax. The insurance company does not have to be directly billed. However, if the insurance company is not directly billed, the invoice for the investigative services must include the name of the insurance carrier.

Apr 15, 1998

Re: Technical Assistance Advisement 98A-024 Sales and Use Tax Investigations for Insurance Companies Section 212.05(1)(j)1.a., F.S.

Dear :

This is in response to your letter of January 29, 1998, requesting a Technical Assistance Advisement (TAA) on behalf of your client, XXX hereinafter "Investigator."

FACTS AND ISSUE

Your letter provides the following information about the activities of your client.

[Investigator] provides private investigative services to insurance companies in the State of Florida. These investigative services are provided on a contract fee basis and involve the collection of data as it relates to possible insurance fraud by individuals or entities. This information may be used by insurance companies to adjust or settle certain insurance claims. The aforementioned

investigative services encompass the sole activity of
[Investigator] in the State of Florida.

Your request for a TAA concludes with the following question.

Is [Investigator] liable for the collection and remittance of sales tax on investigative services described above and provided in the State of Florida?

APPLICABLE STATUTE

Section 212.05, F.S., provides in part:

(1) For the exercise of such privilege, a tax is levied on... (j)1.a. Detective, burglar protection, and other protection services (SIC Industry Numbers 7381 and 7382).

DETERMINATION

Section 212.05(1)(j)1.a., F.S., which imposes the tax on detective, burglar protection, and other protection services, expressly states that the tax will apply to SIC (Standard Industrial Classification) industry numbers 7381 (Detective, Guard, and Armored Car Services) and 7382 (Security Systems Services). In order to understand the scope of services which are subject to tax, another SIC industry number must be considered as well.

SIC industry number 6411, applies to insurance agents, brokers, and service. Although this classification primarily concerns insurance agents, the SIC manual states that "[t]his industry also includes independent organizations concerned with insurance services." The classification goes on to list insurance claim adjusters, insurance information bureaus, and insurance inspection and investigation services.

Again, the statutory section which imposes the tax on investigative services imposes the tax based on those activities found in SIC industry numbers 7381 and 7382. When Investigator

provides investigative services for insurance purposes it is considered to be performing services within SIC industry number 6411. Accordingly, such services are not subject to tax.

The insurance company does not have to be directly billed; however, the fact that the charge for investigative services is for an insurance investigation must be established. Therefore, when an insurance company is not directly billed for the investigation, the invoice for the investigative services must include the name of the insurance carrier. Without the name of the insurance carrier, it cannot be presumed that the investigation has been performed for insurance purposes, and the service will be subject to tax.

SIC industry number 6411 makes no mention of, nor does it recognize, self-insured businesses as insurance carriers. Section 624.02, F.S., defines "insurance" as "a contract whereby one undertakes to indemnify another or pay or allow a specified amount or a determinable benefit upon determinable contingencies." The fact that a business decides to be selfinsured for property losses or liabilities does not create a contractual relationship nor does it make that business an insurance carrier. Accordingly, except for formal selfinsurance plans as defined in s. 624.031, F.S., any investigative services performed by Investigator for selfinsured businesses must fall within SIC industry number 7381 and are subject to tax.

This response constitutes a Technical Assistance Advisement under Section 213.22, F.S., which is binding on the Department only under the facts and circumstances described in the request for this advise as specified in Section 213.22, F.S. Our response is predicated on those facts and the specific situation summarized above. You are advised that subsequent statutory or administrative rule changes, or judicial interpretations of the statutes or rules, upon which this advise is based, may subject similar future transactions to a different treatment than expressed in this response.

You are further advised that this response and your request are public records under Chapter 119, F.S., which are subject to

disclosure to the public under the conditions of Section 213.22, F.S. Your name, address, and any other details which might lead to identification of the taxpayer must be deleted by the Department before disclosure. In an effort to protect the confidentiality of such information, we request you notify the undersigned in writing within 15 days of any deletions you wish made to the request or response.

Sincerely,

Jeffery L. Soff
Tax Law Specialist
Technical Assistance and
Dispute Resolution

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